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Can’t pay Bounce Back Loan and getting stressed? The Bounce Back Loan Scheme (BBLS) enabled smaller businesses to access finance more quickly during the coronavirus outbreak.

However, many businesses are now struggling and unable to repay these loans and as a result, there are a number of matters to consider:

  • Pay As You Grow Scheme.
  • Are you personally liable for a Bounce Back Loan?
  • Winding up a company through Liquidation.
  • Can you dissolve or strike off the company with the Bounce Back Loan unpaid?
  • Could you lose your home because you did not repay the Bounce Back Loan?
  • Can you negotiate a discount or reduced amount that you have to repay to settle the Bounce Back Loan?
Bounce Back Loan Application

What Is The Pay As You Grow Scheme If You Can’t Pay A Bounce Back Loan?

Pay As You Grow is the government’s restructuring of the repayment plans for businesses that have taken out Bounce Back Loans.

Initial Repayment Plan

The initial repayment plan was arguably optimistic, with an aspiration that businesses would start repaying the loans which were for a period of 6 years; after 12 months. The impact of Covid-19 has extended wider than initially perhaps thought and with a second national lockdown the government appears to have recognised that repayments of Bounce Back Loans may have to stretch over a longer repayment period. As a result, it has set up Pay As You Grow.

Pay as you grow because Can't Pay Bounce Back Loan

Announcement Of Pay As You Grow

The British Business Bank, the UK’s economic development bank, announced details of Pay As You Grow, which helps UK smaller businesses that have taken out a Covid-19 emergency Bounce Back Loan to manage their cash flow and have a better chance of getting back to growth.

Originally announced by the Chancellor of the Exchequer in September 2020, Pay As You Grow was originally put forward in September 2020 to enable businesses who have started repaying their Bounce Back Loans to:

  • request an extension of their loan term to 10 years from six years, at the same fixed interest rate of 2.5%
  • reduce their monthly repayments for six months by paying interest only with this option available only up to 3 times during the term of the Bounce Back Loan
  • take a repayment holiday for up to 6 months with this option available only once during the term of the Bounce Back Loan.

Businesses that have taken out a Bounce Back Loan and who want to take advantage of Pay As You Grow can seek to use all or select some of these three options during the period of the Bounce Back Loan. The question is how rigorously will these repayment plans now be?

It is said by the government British Business Bank that lenders were due to start talking to borrowers about Pay As You Grow 3 months before repayments were due to commence. These Bounce Back Loan lenders were to inform their customers about how their repayment plans may change in accordance with the options that they select under the Pay As You Grow scheme.

There is more information in an article called Pay As You Grow Scheme For Bounce Back Loans.

Can You Be Personally Liable For A Bounce Back Loan You Can’t Pay?

A company Director is not personally liable for a Bounce Back Loan they cannot pay

Bounce Back Loans are not personally guaranteed and as a result, they are an unsecured claim in the company in Liquidation. The Directors are not personally liable for any element of a bounce back loan that has not been repaid. You can therefore Liquidate your company with a Bounce Back Loan.

personally liable if can't pay

However, that does not mean that a Director who has incorrectly or improperly used a Bounce Back loan will be able to simply walk away from them.

The state of the fragile UK economy is such that it is likely that many companies will default on repayment of such loans.

It is quite likely that many companies even after having had the benefit of a Bounce Back Loan will, unfortunately, wind up in Liquidation or Administration.

The liability for a Bounce Back Loan is with the limited company. The scheme is fully backed by the UK government.

There was no requirement for a company director to provide a personal guarantee. This is different to the Coronavirus Business Interruption Loan Scheme (CBILS), which was only partially government-backed with some lenders demanding personal guarantees. A Bounce Back Loan requires no such guarantees from directors.

What Happens If My Company Goes Into Liquidation?

If your company goes into Liquidation it is unlikely that the loan would be repaid in full leading to it being written off. If your Bounce Back Loan cannot be repaid then in all likelihood it will have to be closed down.

In order to close down the company one way to do that, is to go into Creditors Voluntary Liquidation. This is the procedure of going into Liquidation, typically at the initiation of the company and not its creditors. A licensed insolvency practitioner must be appointed to be the Liquidator who acts instead of the Directors under the provisions of the Insolvency Act 1986. He or she will value and then look to realise the company’s assets, repay the creditors as set out in the statutory order of payment in insolvency proceedings, to enable the company to be the subject of an orderly winding-up process.

Alternatively, the company could go into Compulsory Liquidation and a similar process undertaken but under the compulsion of having first been the subject of a Court order.

liquidation if Can't Pay Bounce Back Loan

If your company does go into Liquidation, banks are ordinarily secured creditors save if they are reliant upon personal guarantees. Usually, a bank will not be without any security of any kind and often their debts are secured against company assets. Subject to the rules on distribution, they are often typically among the first creditors to be repaid from realisations of the company’s assets.

However, this is not the position where a Bounce Back Loan is concerned because there is no security provided. The loan is underwritten by the UK government who the bank can look to for repayment of the loan, not the company if there is a shortfall on liquidation.

Director’s Duties And Responsibilities

In times of normal trading, a company would not have been able to quite so easily obtain loans from banks such as those offered by the Bounce Back Loan Scheme without providing some security over the company’s assets or a personal guarantee.

In view of that, it is expected that Directors will behave responsibly when taking out such loans in accordance with their Director Duties. If information supplied to obtain the loan was found to have been misleading, then a director who provided the same could be at risk of having obtained credit improperly. Such improper conduct could amount to a breach of duty by a director, otherwise known as misfeasance. A director found guilty of misfeasance can be called upon to personally compensate the company for the loss they have caused it to suffer.

director duties when can't pay bounce back loan

If the company was not viable as it is required to have been in December 2019, then conceivably the directors of such a company that took out a Bounce Bank Loan may be at some risk of being investigated by a Liquidator for Wrongful Trading if the company later went into Liquidation.

Tbe risk of Wrongful Trading was somewhat reduced because of legislation (The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Suspension of Liability for Wrongful Trading and Extension of the Relevant Period) Regulations 2020) introduced to suspend the Wrongful Trading provisions until 30 April 2021. However, this suspends certain periods of Wrongful Trading; it does not suspend all periods of time that the company might have been wrongfully trading. This has been explained in an earlier post called Wrongful Trading suspended again.

There is more information in the article Could I Be Personally Liable For A Bounce Back Loan?.

Can You Strike Off A Company With A Bounce Back Loan?

It is perhaps in theory possible to strike off a company with a Bounce Back Loan that you cannot pay

It is technically possible to dissolve or strike off a Limited Company with a Bounce Back Loan that is outstanding. However, it is generally not recommended because it is likely that it would be objected to, even if you do satisfy the strict criteria.

strike company off if can't pay bounce back loan

What Is The Criteria To Strike Off A Limited Company?

The criteria to strike off or dissolve a Limited Company is:

  • No change of name in the last three months.
  • No trading has taken place in the last three months.
  • No disposal of assets for value prior to cessation of trading in the last three months prior to the application being made to dissolve the company.
  • The company must not be in Administration or no processes of placing the company into Administration presently arising.
  • The company must not be being wound up and placed into Liquidation.
  • The company must not have an existing proposal for a Company Voluntary Arrangement outstanding or in process.

What Is Trading For The Purposes Of A Dissolution Application?

Trading is not the payment of a liability.

Why Might An Objection Be Lodged To Dissolving A Company With A Bounce Back Loan?

The reason that an objection might be lodged if you were to attempt to dissolve or strike off a Limited Company with a Bounce Back Loan is that if a company has debts that it cannot pay it is insolvent. If a Limited Company is insolvent and unable to pay its debts when they fall due there are procedures set out in the Insolvency Act 1986 that a company should go through.

An example of such a procedure is Creditors Voluntary Liquidation. A Creditors Voluntary Liquidation (“CVL”) is a procedure in which the company Directors take action to place their company into Liquidation by taking the responsible action to follow what is likely to be the correct procedure to close down the Limited Company.

A Liquidation is an orderly winding up and finalisation of a Limited Company’s affairs after it has ceased trading. It is a process that is overseen by a Liquidator.

If you attempt to bypass a Liquidation procedure by seeking to strike off your Limited Company then creditors owed money such as the Bounce Back Loan creditor that has not been repaid may consider that the correct process has not been undertaken to wind down your company.

What Happens If A Creditor Objected To My Company Being Struck Off?

If a creditor objected to the striking off of your company or its dissolution then you should typically receive from Companies House a notice informing you of this position. You would then have a number of options:

  • Do nothing.
  • Apply to go into Creditors Voluntary Liquidation.
  • Apply to go into Compulsory Liquidation.
  • Negotiate with the objecting creditor to see if further action can be avoided.
  • Take professional advice.

The creditor objecting to the striking off of the Limited Company can then take action to wind up the company themselves by issuing a Winding Up Petition or issuing legal proceedings seeking a judgment to be registered against the Limited Company.

If however this creditor who is objecting to the striking off of the Limited Company does nothing, they can still usually lodge a further objection within three months of the last one and as a result, extend the period in which nothing might happen to the company for a further three months. However, it is likely that after six months if neither the company nor the creditor takes any legal steps to resolve matters either by issuing legal proceedings or to formally wind up its affairs by way of a Liquidation then the company will be dissolved at Companies House.

There is more information in the article Can You Strike Off A Company With A Bounce Back Loan?.

Could You Lose Your Home Due To A Bounce Back Loan?

It would be unlucky for someone to lose their home over an inability to pay a Bounce Back Loan

If you have taken out a Bounce Back Loan you would probably be unlucky if you were to lose your home.

In order for it to happen, it is likely that a series of other matters would have to combine to cause you to lose your home rather than simply not being able to repay the Bounce Back Loan itself. Even for sole traders, the British Business Bank said:

For sole traders or small partnerships, who often risk their personal assets when borrowing, the terms of the Bounce Back Loan Scheme means no recovery action can be taken over a principal private residence or a primary personal vehicle.

can't pay bounce back loan

Protected might be going a bit too far but the reason your home is likely not to be at risk simply because you took out a Bounce Back Loan that you cannot any longer repay, is that the bank which lent you the funds was not able to obtain a personal guarantee from you. As a result, the inability to repay the loan might lead to the company going into Liquidation but it should not result in you going into personal Bankruptcy.

Your home should also be protected because not only was the bank that gave you the Bounce Back Loan unable to obtain a personal guarantee from you as confirmed by the British Business Bank that operated the scheme for the government in its FAQs for Small Businesses: Bounce Back Loan Scheme page but also, the bank was not allowed to take a charge or security for the Bounce Back Loan over your family home.

There is more information in the article Could I Lose My Home Due To A Bounce Back Loan?.

Can You Get A Discount On Your Bounce Back Loan You Can’t Pay?

It does appear it is possible to get a discount on amounts due under a Bounce Back Loan.

However, the evidence for this is currently unclear. It appears to be a developing matter.

loan discount

It appears from a report dated 3 December 2021 called The Bounce Back Loan Scheme: an update issued by the National Audit Office, that in December 2020, HM Treasury seems to have agreed with lenders on the enforcement process for repayment of Bounce Back Loan monies as follows:

Enforcement is not expected unless in the event of serious or organised fraud, or borrowers refusing to pay but has assets.

It does seem that Bounce Back Loan discounts are a possibility going forward and may well be being offered to parties who cannot pay a Bounce Back Loan. It may therefore be possible to negotiate both the timescales and amounts to be repaid in respect of a Bounce Back Loan.

Oliver Elliot Comment

Oliver Elliot Comment !

If you cannot repay a Bounce Back Loan with your company ceasing to trade and you want to close it down then we can help you with that process. We are fully licensed to enable you to consider placing a company into Creditors Voluntary Liquidation and if it is right for the circumstances. This may enable you to make a fresh start but in any event, the Liquidation can look to address the Bounce Back Loan. Contact us for a quote and free initial confidential advice.

GET IN TOUCH FOR HELP

For a free no obligation chat about any of the matters detailed above, please do get in touch for help. An expert will call you back or if you prefer exchange emails.

We can explore your situation and consider the best way to help you and your business needs. You can call us 020 3925 3613 or fill in the form below and will get back to you quickly. We Know Insolvency Inside Out.

Author: Elliot Green
Last Updated: April 13, 2024

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Disclaimer: Can’t Pay Bounce Back Loan?

This page Can’t Pay Bounce Back Loan? is not legal advice and should not be relied upon as such. This article Can’t Pay Bounce Back Loan? is provided for information purposes only. You can contact us on the specific facts of your case to obtain relevant advice via a Free Initial Consultation.

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